Navigant Research Blog

As we think about what to expect for 2012, I have assembled a short list of what I am watching in the world of medium and heavy duty trucks. Here are several key trends that we are watching in the truck market in 2012:

1) The world economy is improving (albeit slowly), such that overall truck purchases are expected to rise this year. The United States saw consumer confidence and spending grow slightly in the last quarter and should be able to extend this into 2012, despite continued risks in Europe. Speaking of Europe, the crisis in Ireland and Greece appears largely averted. While other countries remain worrisome (looking your way, Italy), the leadership finally appears to be taking this seriously and 2012 is looking to be a bit smoother than 2011. Interestingly, a cloud that hangs over early 2012 is China’s potential trade deficit with the United States. Slowing exports may mean that China’s employment may not keep up with its growing urban population, which would stunt domestic economic growth. This could potentially add to the economic growth in the U.S. and Europe as imports to China rise. However, expect that the Chinese government will make some policy changes (stimulus or monetary changes) to bolster specific domestic economic sectors – likely producing a positive impact on the truck market in China.

2) We anticipate that 2012 will be the year that hydraulic hybrids will move from demonstration projects to full commercialization. These hybrids will be focused in the largest users of fuel (we have seen them in delivery vans and refuse trucks for the most part so far). This focus will continue, but wider fleet adoption is expected in 2012.

3) Natural gas is growing in heavy applications (transit buses and Class 8 trucks) where the upfront cost of hybrids and plug-in remains a significant hurdle. In 2012, this trend is likely to continue, particularly in European and developing Asian markets. The lower cost of the natural gas conversion and the availability of low cost refueling infrastructure in some markets will push transit agencies in particular to focus on CNG as the fuel of choice.

4) Plug-in electric truck growth has been slow in 2011. A large part of this is due to the industry being focused on the United States, Japan, and China for plug-in trucks. Japan spent a good part of 2011 rebuilding from the disastrous earthquake, leaving China and the weak economy of the United States to lead the global sales of plug-in trucks. China is expected to be flat or even slightly lower in 2012 depending on how item #1 plays out, leaving the focus to remain on U.S. into 2012. However, Pike Research expects that Europe will start to see significant growth in plug-in trucks as well. Smith Electric Vehicles of the U.K. (now part of the U.S. Smith Electric Vehicles) is well positioned for growth, and Daimler and Mitsubishi Truck & Bus (Daimler owns 85% share) have demonstrated the Fuso Canter E-Cell battery electric truck based on one of the most popular truck platforms in Germany. Transit buses are another source of interest in heavy duty electric drivetrains in Europe, with electric bus projects showing up in the U.K. and France.

5) Small fleets will continue to be neglected in 2012. While the big fleets (think Fedex, UPS, DHL, Perolator, Fritolay) capture the headlines because of their large green truck purchases, a large part of the volume in the medium and heavy duty truck market comes from small fleets. These small fleets have been largely ignored by emerging plug-in and hydraulic truck technology, leaving CNG and hybrids to take a lead in this market. This won’t likely change in 2012, though hybrids may start to play a bigger role in this market as Hino, Navistar, and Freightliner continue to push their hybrids through their large dealer networks. However, most smaller fleets will continue to look towards truck and engine downsizing, and alternative fuels as their best options for reducing fuel costs.

While each of these events had their own specific issues and implications, all could have an impact on motorists. The Keystone XL pipeline was designed specifically to add pipeline capacity to utilize excess oil refining capacity in Texas. While this will not have an impact in the short-term, by 2015 the current pipelines will be at capacity and fuel costs will increase. The administration’s move to delay approval of this pipeline is seen as either an environmental win or short-sighted instance of kicking the can down the road, depending on which side of the issue you sit on.

Although New York’s fracking debate is a state-specific issue, this is more a representation of the issues facing the natural gas vehicle industry. Between the push-back on hydraulic fracturing and the now all-but-defunct NATGAS Act, it seems clear that while politicians often express support for natural gas vehicles, that support is largely hollow. While the NGV market may not need political support to survive, what’s more disturbing is the lack of national guidance at the federal level on new oil and gas extraction technologies, which means that the effort to monitor and improve fracking safety will likely be left to states and local governments. This may in fact be the single greatest negative threat to the NGV market in the coming years.

All of these developments demonstrate that when it comes to clean transportation, U.S. policy is a mess. The ATVM loans and the postponement of Keystone XL both have the potential to change the way Americans drive, through technology and higher petroleum costs. This, in combination with increasing availability of public transit, is the strategy that the Obama Administration appears to have fallen into – a sound, long-term, high-cost strategy that clearly isn’t supported on either side of the aisle. Meanwhile, the market for NGVs struggles toward viability.

The one-word answer to the question of U.S. policy on clean transportation would be simply “Less” – less oil, less technology, less alternative fuels. Unfortunately, “less” is not a strategy, and neither the Obama administration nor Congress seems willing or able to come up with one.

I always enjoy reading John Petersen’sblog posts and articles. He and I often look at the same data and yet come to very different conclusions. In his latest blog post, he claims that diesel and plug-in electric vehicles (PEVs) are undermining the hybrid EV market, that all non-lithium-ion battery technologies are doomed to failure thanks to the U.S. Department of Energy’s Li-ion worship – and that Li-ion manufacturers are also doomed to failure, anyway. (Petersen’s views may not be entirely objective: the disclaimers at the end of his posts on Seeking Alpha claim that Mr. Petersen is a former “director of [lead carbon battery-maker] Axion Power International and holds a substantial long position in its common stock”).

On the face of it, Petersen’s data appear to support his statement that clean diesels and PEVs have cannibalized the hybrid market. But cannibalization is a complicated issue, and just looking at the sales numbers is a superficial method of getting to that conclusion. There are few examples of similar vehicles offered by the same manufacturer to try to make this a valid comparison. (VW now offers gas, hybrid, and diesel versions of the Touareg, so it will be a good vehicle to watch over the next year.)

Comparing apples to oranges, one could look at the Toyota Prius, with half the volume in the hybrid market, and the VW Jetta TDI, with almost 60% of the clean diesel volume in the U.S. The Prius looks like it will be down about 4% for the year, while the Jetta TDI (which got redesigned for 2011) is up about 18%. Yet, the gas version of the Jetta is up about 39% this year. So, on the face of it, the data seems to say that the TDI version is being outpaced by its gas-powered sibling, rather than cannibalizing from hybrids. The PEV side of the board is clearer, as Mr. Petersen’s claim that PEVs are stealing share from hybrids may be valid. We hear anecdotally about hybrid trade-ins for PEVs, and the plug-in Prius, coming in early 2012, will also likely draw interest from current Prius owners.

The second claim is that in essence 95% of the $1.2 billion in federal ARRA grants for battery manufacturing was wasted tax payer dollars (I’m paraphrasing here). If John Petersen were in charge, the federal government would be investing more broadly in a wider array of battery technology, including lead acid. This despite the fact that even as far back as late 1990’s, GM was finding the limits of lead acid in their EV1. Can lead acid or nickel metal hydride be improved? Sure, but that doesn’t mean that we as taxpayers should be dedicating equal funding to companies whose technology seems unlikely to ever match the performance of Li-ion. If his argument is for technology that’s based on current market acceptance, then why spend money on batteries at all? Following that argument, the $20 billion in oil subsidies and tax abatements would grow, since that’s where the DOE will get guaranteed business success.

Petersen points to the spotty supply chain for lithium ion transportation and stationary batteries, claiming that this either “reckless apathy or simply a childlike faith that the taxpayers, like doting first-time grandparents, are breathlessly waiting for any opportunity to provide whatever the golden child needs or wants.” The accompanying chart he uses to back up this claim comes from a Roland Berger study on the Li-Ion battery value chain. As I went through that study, though, I came to very different conclusions than Mr. Petersen.

It seems unlikely to me that as the demand for Li-ion increases, the supply chain will remain stagnant. Most of the Li-ion battery manufacturers that I’ve spoken with point to the cathode as the critical cost driver in the batteries, so we can expect that this will be the focus of process and supply improvements in the coming years. Recent news shows that manufacturers are recognizing the supply chain as an opportunity as well.

Interestingly, Mr. Petersen, Roland Berger, and I all agree that cell production is in excess capacity for the current opportunity in PEV vehicles. Pike Research is anticipating global demand of 27.7 million kWh for Li-ion in transportation in 2017, based on 2.9 million global hybrid and PEV sales. By comparison, the global market in 2011 is 2.53 million kWh, and A123 has stated capacity of 0.6 million kWh. If this all went to transportation, then A123 should have 24% market share of the global market. Suffice to say they do not, and layoffs have been the result. However, that also equates to roughly 2% of the market in 2017 (or about 10% of the North American market), which will be too small if their success in the stationary market continues.

The Leaf’s early success is a proof-of-concept that limited range city vehicle can make a go of it in the U.S. The Volt is proving that the plug-in hybrid model also makes sense. Let’s not forget that the Prius didn’t sell more than 25,000 in a year until its first redesign in 2004 – five years after launch. The Ford Escape hybrid has never broken the 25,000 sales/year mark. But I’d venture to say that neither of these are considered failed programs by their battery suppliers or by the DOE.

Plunging headlong into 2012, it’s a good time to pause and look back at our predictions for what Pike Research forecast would happen in the world of electric vehicles in 211. Here’s a quick rundown of what Pike Research predicted for 2011 along with analysis of where we hit and missed:

1. The majority of people who drive a plug-in vehicle won’t own it.

This prediction was on the money as GM and Nissan allocated a good percentage of their vehicles to dealers to make them available for test drives and to corporations for fleet use. As predicted, car sharing programs are incorporating EVs into their fleets to enable many consumers to get their first taste of electric motoring, and we expect that trend to continue in 2012.

2. Automakers will get pushback from EV owners regarding the length of time it takes to fully charge a vehicle.

We haven’t heard as much negative feedback on charging times as we anticipated, partly due to the fact that most consumers are buying faster Level 2 charging equipment rather than plugging vehicles into a standard outlet. However, Nissan decided that offering a 3.3-kilowatt onboard charger was a competitive disadvantage for the Leaf and therefore doubled the speed for the 2012 model.

3. Stop-start vehicles will arrive in the United States, albeit in small numbers

Sales of non-hybrid vehicles with stop-start technology were indeed minuscule in 2011. During 2011 Ford and Volkswagen announced they were bringing stop-start to their North American lineups by 2012, and Wisconsin-based Johnson Controls announced it was investing more than half a billion dollars globally in stop-start battery manufacturing capacity.

4. Many EV charging stations will spend the majority of their time idle

We didn’t exactly go out on a limb with this prediction. Despite the fact that public charging stations installations have lagged, in many cities there are more public chargers than EVs today. We’ve heard many anecdotal stories of charging stations that are rarely if ever servicing vehicles and we can expect that to continue in 2012.

5. Fuel cell vehicles (FCVs) will be sold to fleets and consumers in small but growing numbers.

Automotive companies are continuing to slowly push forward towards commercialization of FCVs, but the quantities sold were very limited in 2011. Based on the lack of availability of vehicles during the year, we sharply reduced our expected sales of FCV for 2011 to less than 700 globally – but that’s up from less than 200 the prior year.

6. Someone somewhere will have a bad EV experience and the media will overreact.

Fortunately for automakers the only negative EV experience that received significant media attention was at a NHTSA test facility. The web and media did play up the event and some reports accused NHTSA of not responding quickly enough. However, the coverage avoided overreaction. Fisker also has an issue about potential fires due to coolant leakage within the battery pack, so we’ll see if the “EV batteries are a fire hazard” follow up stories continue.

7. The advanced battery category will heat up with M&A activity.

Way off. There were no significant acquisitions or mergers during the year, and the biggest news was actually of an “anti-merger” – the dissolution of the Johnson Controls and Saft joint venture. We expected some of the smaller companies to be acquired, but the independent battery startups managed to survive on their own despite sluggish EV sales. Lithium-ion battery maker Boston Power received the most interest from investors as the company is shifting its focus, and its operations, to China.

8. “Range anxiety” will prove to be more fiction than fact.

The accuracy of this prediction is hard to quantify, but the hypothesis that EVs would become stranded as drivers would not be able to cope with the shorter driving ranges appears to be false. The media attention to range anxiety is slowly subsiding and should continue to fade from view in 2012.

9. The best-selling EVs won’t have four wheels.

This one was a gimme. Global sales of electric bikes and motorcycles are continuing to grow rapidly, and are finally making inroads in the United States. Two-wheeled electric vehicle sales far outpace all forms of hybrids and EVs, and with companies such as SRAM getting into the game, the gap will continue to widen.

10. The landscape for charging equipment will undergo a seismic shift as the category swiftly moves toward becoming a commodity market.

We were on target in predicting a seismic shift in EV charging equipment, but we picked the wrong one. Prices didn’t fall as quickly as expected due to lower than expected sales of EVs and chargers. But an emerging business model where third-party companies own and operate the charging equipment at no cost to the property owner has shaken up the industry. These charging-as-a-service providers (350 Green, Car Charging Group, etc.) will help drive up volumes and drive down sales.

Overall, six of Pike Research’s 10 predictions mostly hit the mark, while four were off or missed entirely. Undoubtedly we’ll do better than 60% for 2012.